CAD at comfortable level, but there are risks: Rajan

Kolkata: Reserve Bank Governor Raghuram Rajan on Thursday said the current account deficit (CAD), which has widened to USD 10.1 billion or 2.1 per cent of GDP in July- September period, is still at comfortable level although there are risks.

The CAD is the net difference between inflows and outflows of foreign currencies.

"The CAD has widened definitely. But it is in the comfortable direction and will be watching carefully. But there are risks to the current account," he said at a news conference after the RBI Central Board meeting here.

As per RBI data unveiled on Monday, CAD has widened to 2.1 per cent due to rising gold imports in the second quarter of this fiscal, up from 1.2 per cent a year-ago.

The central bank had cited higher trade deficit due to rising gold imports as the primary reason for the spike in CAD. Gold imports surged 8.1 per cent, while merchandise exports growth dipped 4.9 per cent in the reporting quarter.

Rajan said gold imports had increased due to relaxations. "It is hard to maintain the restrictions on gold imports for a long time. We need to relax them," he said.

In May government had relaxed the gold import norms and six private sector trading firms were permitted to import the gold under the 80:20 scheme imposed in 2013 to rein in rising CAD.

The government has recently scrapped the controversial 80:20 gold import norm too.

With oil prices coming down, there would be some kind of cushion going forward.

"But it is difficult to rely on these price movements and it is uncertain. We are not certain what is going to happen later," he said

With inflation going southwards, fixed income deposit would be more attractive and imports of gold would definitely go down, the RBI Governor said.

"There are risks to the current account. But we are not apprehensive in any way," Rajan said.

Consumer price based inflation declined to 5.52 per cent in October, while WPI is five-year low of 1.77 per cent for the same month.

Many banks including country's largest lender SBI, has announced a cut in term deposits on select maturities rates post RBI policy review on December 2.